Loose Lips

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Just two years after getting whacked by the Securities and Exchange Commission for violations of Regulation Fair Disclosure (Reg FD), Siebel Systems Inc. has been hit again. This time, the people accused of violating the rule, which prohibits selective disclosure of material nonpublic information to those likely to trade on that information, are two men who should know better: CFO Kenneth Goldman and Mark Hanson, senior vice president for corporate development.

According to the civil enforcement action filed June 29, Goldman offered a bright outlook on Siebel's future at a private dinner and a one-on-one meeting with institutional investors on April 30, 2003, and Hanson didn't prevent him from doing so. The message, the SEC alleges, was much brighter than the one CEO Thomas Siebel had offered publicly. Following the meeting, the investors converted a net 108,200 share short position into a net 114,200 share long position, and the stock price jumped about 8 percent.

Siebel has vowed to defend its action, but has declined further comment. These allegations bear a remarkable resemblance to a Reg FD violation for which the company paid a $250,000 penalty, but admitted to no wrongdoing, in November 2002.

"If executives go into a private meeting and change their guidance in a material way, that's just dumb," says Louis Thompson, CEO of the National Investor Relations Institute. But, he adds, some old habits die hard.

Some buy-side analysts agree. "Companies are more cautious, but that doesn't mean they're compliant with Reg FD," says Kaushik Roy, an equity analyst with Susquehanna Financial Group. "Violations still happen all the time."

Roy says that how executives deliver their guidance is often as important as what they say. "They may use the same words, but they often use body language that tells analysts in a private meeting a different story than what the public is hearing," he asserts. "But those analysts who aren't on the favorite list aren't ever going to be in the same room with them." —Kris Frieswick

More Fallout from Tax Shelters

Who knew that corporate tax shelters could turn into such traps, especially for the organizations that created and sold them?

In July, Richard Rosenthal, KPMG LLP's CFO, resigned. A KPMG spokesman refused to comment on the reasons for the resignation. But before becoming CFO, Rosenthal had been vice chairman of the firm's tax practice. In that role, he helped oversee the marketing of tax-shelter products, including one called SC2 that was ruled abusive by the Internal Revenue Service in April.

A KPMG spokesperson insisted that Rosenthal's role had been merely to "oversee day-to-day operations" of the tax group, but Rosenthal's name came up repeatedly in a Senate investigative report on abusive tax shelters that was released in November 2003.

While two of its competitors, PricewaterhouseCoopers LLP and Ernst & Young LLP, have already reached settlements with the IRS on this issue, KPMG has been unable to do so. Instead, the Justice Department has accused the firm of stalling, mainly because of its refusal since 2002 to respond to subpoenas for the names of the buyers of the tax shelters. A federal court recently ordered KPMG to release the names. The firm also faces a federal grand jury investigation in Manhattan (as does E&Y).

In January, three senior KPMG tax executives either left the firm or were reassigned. At that time, KPMG issued public statements indicating that these actions were a direct result of the investigations into the tax shelters. (At least one executive now faces potential criminal charges.) It has made no similar statement with regard to Rosenthal's resignation. —K.F.